Understanding Electric Vehicle Incentives and Tax Benefits: A Guide for EV Buyers (Post FAME II)

Electric vehicles (EVs) have become a key component of India’s push toward sustainability and cleaner energy. To support the growth of EV adoption, the government has rolled out various incentives, tax benefits, and subsidies to make these vehicles more affordable for consumers. As EV technology continues to evolve, so do the government schemes aimed at promoting electric mobility.

This blog explores the incentives available to EV buyers in India following the end of the FAME II scheme, the introduction of the Electric Mobility Promotion Scheme (EMPS), and the new PM E-Drive initiative. We'll also discuss the financial benefits that make EVs an attractive choice for Indian consumers.

The Transition from FAME II to EMPS

The FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, which was one of the central government’s major initiatives for promoting electric vehicles, came to an end recently. Launched in 2019, FAME II provided direct financial subsidies on EV purchases, along with support for setting up charging infrastructure across the country. It had a substantial impact on increasing EV adoption, especially in the electric two-wheeler, three-wheeler, and public transport segments.

With the conclusion of FAME II, the Indian government introduced the Electric Mobility Promotion Scheme (EMPS) to carry the momentum forward. This new scheme builds on the lessons learned from FAME II while focusing on creating a more sustainable ecosystem for electric vehicles in India.

Key Features of EMPS:

1. Subsidies for EVs:EMPS continues to provide financial assistance for buyers of electric vehicles, but with more focus on high-efficiency models and India-made vehicles. This helps promote domestic manufacturing while driving adoption.

   • Electric Two-Wheelers: Subsidies remain available for popular models like the Ather 450X, Ola S1, and Hero Vida V1. The incentives are based on battery capacity and vehicle efficiency.

   • Electric Cars: EV models like the Tata Nexon EV, MG ZS EV, and Mahindra XUV400 also benefit from subsidies under EMPS.

2. Focus on Infrastructure:Like FAME II, EMPS provides support for expanding the charging infrastructure in cities and along highways. This includes the installation of fast chargers at key locations to make long-distance travel easier for EV users.

3. Battery Leasing and Swapping:Battery leasing and swapping models continue to be encouraged, particularly for electric two- and three-wheelers. This reduces the upfront cost of EVs and provides users with flexibility in charging and battery maintenance.

4. Domestic Manufacturing Push:A key goal of EMPS is to promote the local production of EV components, including batteries, motors, and controllers. This is aligned with the Make in India initiative and aims to reduce reliance on imported EV technology.

Key Limits of EMPS Scheme:

1. Subsidy Cap for Two-Wheelers:

   • The EMPS provided a subsidy of up to ₹15,000 per kWh of battery capacity for electric two-wheelers.

   • The maximum subsidy amount was capped based on the vehicle's efficiency and battery capacity.

2. Subsidy Cap for Electric Cars:

   • For electric four-wheelers, the EMPS offered subsidies, but the exact cap was dependent on the vehicle’s specifications and efficiency. Generally, the subsidy was lower compared to the FAME II scheme for cars.

3. Infrastructure Support:

   • While the EMPS continued to support the development of EV charging infrastructure, the budget was allocated based on the need and the expansion of infrastructure.

4. Battery Swapping and Leasing:

   • The scheme supported battery swapping and leasing models but within specific limits and conditions to ensure sustainability and efficiency.

5. Focus on Domestic Manufacturing:

   • EMPS had a strong emphasis on promoting domestic manufacturing of EV components, including batteries and motors. The incentives were partly tied to the local production of these components.

PM E-Drive: The New Boost for Electric Mobility

The PM E-Drive initiative, which followed the launch of EMPS, is designed to accelerate the transition to electric vehicles across different segments, with a particular focus on electric two-wheelers and commercial EVs.

Key Features of the PM E-Drive Initiative:

1. Enhanced Incentives for Electric Two-Wheelers:Electric two-wheelers are a major focus of the PM E-Drive initiative. With affordable electric scooters and motorcycles dominating the Indian market, the government aims to make them more accessible by offering higher subsidies for models that meet specific efficiency and performance criteria.Popular models like the TVS iQube, Revolt RV400, and Bajaj Chetak have seen increased adoption thanks to these incentives, making it easier for first-time EV buyers to transition.

2. Support for Commercial EVs:PM E-Drive places special emphasis on the electrification of small commercial vehicles, such as electric three-wheelers, used for urban deliveries and passenger transport. This segment is crucial in reducing urban emissions and improving last-mile connectivity.

3. Infrastructure Development:In addition to vehicle subsidies, PM E-Drive supports the continued expansion of public charging stations. The initiative has a target of installing EV charging points in every major city and along key transportation corridors, ensuring that charging infrastructure grows in parallel with vehicle adoption.

4. Incentives for Manufacturers:Under PM E-Drive, incentives are provided to EV manufacturers who produce high-efficiency, high-performance vehicles in India. This not only lowers the cost for consumers but also stimulates domestic manufacturing and innovation in the electric vehicle sector.

State-Level EV Incentives and Subsidies

In addition to central government initiatives like EMPS and PM E-Drive, several Indian states continue to offer their own incentives to make EVs more affordable. These state-level subsidies are often layered on top of central government benefits, providing even greater savings for consumers.

Notable State-Level Subsidies:

• Delhi: The Delhi government offers a subsidy of up to ₹30,000 for electric two-wheelers and up to ₹1.5 lakh for electric cars, along with exemptions from road tax and registration fees.

• Maharashtra: The Maharashtra government provides subsidies of up to ₹25,000 for two-wheelers and ₹1.5 lakh for electric cars, along with early bird incentives.

• Gujarat: Gujarat has one of the highest incentives for electric two-wheelers, offering up to ₹20,000 in subsidies. The state also provides up to ₹1.5 lakh in subsidies for electric cars.

• Karnataka: Karnataka offers road tax exemptions for electric vehicles, making EV ownership more affordable.

Impact of State-Level Incentives:

These state-level subsidies, when combined with the central government's EMPS and PM E-Drive incentives, can significantly reduce the upfront cost of purchasing an EV. For instance, in states like Delhi and Maharashtra, electric two-wheelers and cars can see price reductions of up to ₹2 lakh when combining both central and state benefits.

Income Tax Benefits for EV Buyers: Section 80EEB

In addition to subsidies and rebates, EV buyers in India can also take advantage of income tax benefits. Under Section 80EEB of the Income Tax Act, individuals can claim a deduction of up to ₹1.5 lakh on the interest paid on loans taken for the purchase of an electric vehicle.

Key Points of Section 80EEB:

• The deduction is available only to individual taxpayers.

• The loan must be taken from a financial institution or a non-banking financial company (NBFC).

• The loan should have been sanctioned between April 1, 2019, and March 31, 2023.

This tax deduction can offer significant savings for buyers of more expensive EVs, such as the MG ZS EV or Tata Nexon EV, further lowering the overall cost of ownership.

Why Electric Vehicles are a Smart Financial Choice

While EVs may have a higher initial price compared to traditional Internal Combustion Engine (ICE) vehicles, various incentives and tax benefits help to bring down the cost. In addition to central and state government subsidies, EVs offer several long-term financial advantages:

1. Lower Fuel Costs:The cost of electricity is significantly lower than petrol or diesel. EV owners can save thousands of rupees annually on fuel expenses.

2. Reduced Maintenance Costs:Electric vehicles have fewer moving parts, leading to lower maintenance costs. There’s no need for oil changes, fuel system repairs, or engine maintenance, which reduces long-term ownership costs.

3. Lower Total Cost of Ownership (TCO):Over time, EVs are more affordable to own and operate than their ICE counterparts due to lower fuel, maintenance, and repair costs.

4. Depreciation and Resale Value:As the demand for electric vehicles continues to rise, their resale value is also expected to improve, making them a better long-term investment.